Strategic Supply Chain Diversification and Tariff Mitigation Efforts
The company successfully mitigated the impact of tariffs, reducing China exposure from 24% in 2024 to 10% by the end of 2025.
Diversification strategies included sourcing from more favorable regions, renegotiating supplier agreements, and bringing some manufacturing back to the U.S.
Tariff impact increased from 180 basis points last quarter to 290 basis points due to settled tariffs at 30%, but management remains confident in mitigation plans to offset future impacts.
Impact of Trade Uncertainty on 2025 Outlook and Margin Management
Timken has reduced the high end of its 2025 earnings guidance due to cautious outlook on the second half, primarily driven by trade uncertainty.
The volatile tariff environment has led to incremental costs, but the company is actively passing these costs into the market through repricing, with some lag.
Timken estimates a full-year net negative impact from tariffs of approximately $10 million, an improvement from previous estimates of $25 million, with full mitigation expected by 2026.
Industry Capacity Reductions and Competitive Market Dynamics
Frontier sees about a 2-3 point better reduction in capacity in its markets compared to the industry in September, with expectations of continued capacity reductions industry-wide due to unprofitability.
Frontier anticipates that reduced capacity from competitors will support higher RASM and profitability, with a focus on peak period capacity management to optimize yields.
Management emphasizes that the domestic market is oversupplied, with most carriers losing money domestically, and expects capacity to continue shrinking as a natural industry response.
Management highlighted the ongoing 25% automotive tariffs, which have significantly influenced import patterns and demand, especially in the tire industry.
The surge in tire imports into the U.S. following the early May tariff deadline has elevated channel inventories and weighed on local tire manufacturing, with expectations of normalization in June data.
Tariffs on India, including potential 15-25% rates, are expected to impact carbon black imports, making them less economically viable and influencing global supply dynamics.
Negotiations for tariffs in India are underway for 2026, with early customer actions driven by elevated tire imports and optimistic outlook for resolution.
European markets are under investigation for Chinese tire dumping, which could alter competitive dynamics and import pressures in the region.
Management anticipates that the new tariff paradigm could lead to a demand ramp-up in 2026, despite current uncertainties and cautious customer behavior.
Dafinchi